In transactions, we often hear a phrase called "the road is simple". It is also often said that trading must return to the essence and implement simple trading strategies in order to finally achieve profitability.
So, is that the case? Can a simple trading strategy be profitable?
I am a person who has experienced ups and downs in trading. I have lost money to the bottom, and I have climbed up. I have developed an extremely complicated trading system. In order to show off and show off, I also used an extremely simple trading system, and the losses were miserable. .
What is right and what kind of trading system can truly achieve profitability? Let's talk about this topic today.
Most of us who do technical analysis have had the same experience.
At the beginning, I will learn a lot of trading knowledge, many kinds of technical indicators, and various academic theories. After learning, I will be full of various strategies and techniques, and the trading system will become more and more complicated. In the end, I will lose my direction and do not know what to do. What is right and what is wrong.
Later, we heard the argument that "the road is as simple as possible" in the market, and we felt that many so-called teachers could make a profit with a naked K, and thought it was too good, YYDS! So I started to go to the other extreme, simplifying my trading strategy to the end, thinking that if I can achieve profitability with such a simple strategy, I can become a god in the trading world.
But whether it is in trading or in life, the most taboo thing is "excessive self-awareness". We are all ordinary people and we can't be gods. This result is profitable, and our goal has been achieved.
Therefore, it doesn't matter what theories are in the market, and it has nothing to do with us. Always remember that our only purpose is not a cosmetic project, but substantial profits.
So, what kind of trading system can achieve profitability?
Simple, but not too simple, otherwise it will not be conducive to implementation.
I have seen such a question on the Internet: In trading, a moving average dominates the world, with long ups and shorts down. Can such a trading system be profitable?
Let's not discuss whether this method can be called a trading system, or whether it can be profitable. Let me first talk about a key point that most people will overlook: trading strategy is a method to achieve profitability, but the final profit result depends on execution.
Therefore, when we formulate a trading strategy, we must consider the implementability of the strategy, rather than simply considering the simplicity and complexity of the strategy, whether it can be profitable, and so on.
Going back to the original question, is it okay to go up and down on a moving average? The answer is: from an implementation standpoint, no.
Based on the basic trading rules of long and short on the moving average, a simple trading system has been worked out, and I will give you an example to illustrate.
The k-line crosses the moving average to go long, hold a long position, the k-line reverses through the moving average, closes a long position, enters a short position, holds a short position, and keeps holding positions alternately.
This trading system is very simple, but also very rough. It can be profitable in theory, but there will be periods of poor performance in the transaction.
You can see the diagram below.
The picture shows the 1-hour K-line chart of EUR/USD. There are a total of 13 trading days, the K-line frequently crosses above and below the 120 moving average. I simply counted at least 21 times. .
Traders are also human beings. Frequent stop losses at this level will constantly hit our hearts like a hammer. Just this simple trend has hammered us more than 20 times. Who will suffer? Got it?
If we lose our ability to execute here, I will also release the future trend for everyone to see.
In the blue rectangle on the left side of the figure, the market fluctuated for 13 consecutive days, then fluctuated for another two days, and then there was a wave of big shorts. In this wave of trends, more than 2,600 points of profit can be made, which can make up for previous losses and have surplus .
It looks like we've been waiting for some sunshine after a storm washes over us. With the benefit of hindsight, we all feel like we can make it to that day. But if you are in the current market and have been stopped more than 20 times in a row, and you don’t know the future trend, not many people can withstand such continuous stop losses.
Never, ever, ever overestimate what you can take.
Therefore, our trading strategy should not be too simple. If it is too simple, we will encounter many execution problems.
So what to do? Based on this trading strategy, we can do some screening of trading signals to reduce the number of stop losses and the amount of losses in the volatile market.
The method I take is to filter trading signals with a larger cycle, please see the schematic diagram.
The picture shows the K-line chart of the daily level of EUR/USD. In the daily chart, we can clearly see that the EUR/USD is below the 120 moving average, the market has continued to be short, and the daily level is in a bearish trend.
The trend in the blue rectangle in the figure is the 1-hour trend of EUR/USD in the figure above.
Use the trend of the daily line to filter trading signals. In the short trend of the daily line level, the hourly chart only chooses to go short and abandon the long orders on the k-line. In this way, the stop loss orders can be reduced by half, and the stop loss amount will also be reduced. Many, our hearts will not be beaten too much, at least we can keep our execution power, so as not to miss the big unilateral short position behind.
In fact, there are many filtering methods, such as multi-indicator filtering, multi-form filtering, multi-period filtering, etc. After filtering, the original extremely simple and rough trading system becomes more complicated. Although the strategy is complicated, it is more conducive to execution. , which is a good optimization.
Therefore, our trading strategy is not as simple as possible. This evaluation benchmark is wrong. We should try our best to achieve simple and clear trading standards on the basis of considering the implementability. This will help us identify the market and ensure our execution.
Many people will be confused when they see this title. Didn’t they say that a good trading strategy should be simple and clear? Why do you have to go through a complicated process?
In fact, the simpler and more essential things must be extracted through complex processes. It seems simple, but it is actually very difficult. This is the most valuable thing, and it is also a process that you must go through. I call it the transformation of complexity into Jane's abilities.
Let me talk about my previous experience in doing business in Africa.
In fact, doing foreign trade is a very cumbersome thing. You have to negotiate contracts with foreign customers, confirm product specifications, packaging, prices, delivery dates, payment methods, etc., and then send product details back to China.
Purchasing domestically also requires meticulous attention to details, comparing quotations from different suppliers, packaging specifications, delivery dates, payment methods, and controlling product quality.
Not only that, but you also need to understand shipping, you have to calculate the specifications of the product, how to arrange and combine to make a container transport more, how to optimize the size of the product, and so on.
If you want to open a business, there are too many details to consider. It took me a year and a half to slowly open up all the processes. During this period, I stepped on many pitfalls and lost a lot of money.
But then what? Once all the processes are perfected and all the details are in my head, it becomes very simple for me to just execute as needed.
In the end, my state is to become idle, do nothing, and just follow the process to make money, which is similar to my state after setting up the trading system for one or two years.
In fact, no matter what we do, it must not be easy to get to the step of success. There may be some shortcuts to help you go faster, but what should be experienced still needs to be experienced.
Just like some students are learning my trading system, although it is already a formed trading system, I still let them do the review and simulation trading seriously. In order to hone one's character and achieve real profit.
For example, some simple reasons, which varieties do you want to trade? Which market to trade? How long is the best time to hold a position? What is the most suitable frequency of consecutive mistakes in the trading results? What is the most stable position ratio? Wait for these questions.
You have to go through it yourself and run it yourself in order to find the most suitable solution for you. You can also grind away your countless dissatisfaction during the running-in. After you have the answers to these, the rest is just execution. Just like after I worked with clients in Africa for a year and a half, all the details were worked out, and the business only needed to sign the contract and collect the money.
Therefore, it is difficult to enter a simple state without going through a complicated process. How should we go through this complicated process?
Step 1: Determine a trading method and start reviewing.
Reviewing is a tool that is beneficial but harmless. You can put your trading strategy into the reviewing software to see which product performs better? How many species are most suitable for trading? What cycle is the transaction? What kind of trading frequency is most in tune with your own work and rest personality? What kind of position is used with controllable risk and reasonable profit? Wait until you can test a trading system that is balanced, stable, suitable for you, and highly executable.
Step 2: Conduct simulated trading.
The simulation disk is the tool that is closest to actual combat, and what it does is also the future market. You can test your trading system according to your regular amount of funds in the simulated market to see if it is also profitable in the future market, which can strengthen your confidence in the trading strategy.
The third step: small capital firm offer.
After you have completed the above series of tests, you can invest in a firm offer with a small amount of money. At the beginning of the firm offer, everyone can make a small amount of money, but it is easy to get ahead after it stabilizes. Let me share one of my own psychological skills here.
If you have been making steady profits for a period of time and want to increase your position, you must adopt the principle of "take three steps and retreat two steps".
For example, if you think you can accept the current position +3000, then you can +1000, because people often overestimate their own tolerance, and the actual tolerance is only about 30% of their own estimate.
Secondly, don’t take frequent increases in positions. After a stable increase in positions for a period of time, you must be able to fully bear the retracement and benefits brought about by this increase in psychology before you can continue to consider the next increase in positions.
It's like doing business. We start with a small investment and a small return. After we have established enough trust and security, we will gradually expand the business.
Moreover, after you straighten out all these processes, you can also apply them to different markets. For example, I have talked about contracts for motorcycle parts, solid beverages, chemicals, and fuel dispensers. Although the products are different, the processes are basically the same. , as long as you make some changes to the details, you can find the source of goods according to your needs, and basically you will not step on the pit.
The same is true for trading. When you are proficient in the entire trading process, if you change a market, such as switching from stock market to futures, or from futures to foreign exchange, the essence of the market is the same, and you will quickly find a way to make money, and you will be able to make profits accurately. Avoid some pits.
In fact, not only trading technology needs to go through the process of simplifying, but also trading cognition.
Everyone has their own cognition about trading in their hearts, and it is difficult for people to earn money beyond their own cognition.
For example, some traders believe that trading is to make high profits, double the heavy position, high risk and high return, so he will definitely choose aggressive heavy position trading.
Some traders believe that if the transaction should flow slowly and pursue long-term and stable profits, then his trading strategy must be conservative and he will trade lightly.
Someone who thinks there is a holy grail in trading must always be looking for ways to predict the future.
Some people think that human nature is strong and uncontrollable. After taking a heavy position, it must be difficult to have self-control, so they will definitely control the position strictly.
So when your cognition is in place, you don't need to rely on external forces to restrain and control, and your thoughts will naturally guide your behavior to the right direction.
So, how can we establish the correct cognition?
theoretical study. There are many books that explain the process of people's cognitive transformation and the methods of transformation, such as "On Practice" in Mao Zedong's anthology. The article explains the relationship between perceptual knowledge and rational knowledge, how to transform rational knowledge into perceptual knowledge, and the problems that may be encountered in the process of transformation. You can also look for other books related to trading psychology, which will help us establish a correct trading cognition.
Practice operation. In the process of our practical operation, we will encounter many failures and losses. This is also the process of stepping on pitfalls and establishing cognition. All we need is to record more, think more, summarize more, and review more than others, so that we can easily find the mistakes we often make, and thus establish a correct understanding of transactions.
I think simplification is a very important ability, which is applicable to any industry. The so-called simplicity you see is not really simple, but the preciousness that most people have summed up after experiencing the stormy waves. Experience, so the trading strategy must be suitable for you, instead of simply pursuing the so-called "simple".
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